It is far more difficult to protect S corporation shares than C corporation shares. That is one disadvantage to the S corporation. Although C corporation shares can be protectively titled to limited partnerships, irrevocable trusts or other entities; these methods are, unfortunately, unavailable to protect S corporation shares. S corporations cannot be owned by these entities or the corporation will lose its S corporation election. It is then far more difficult to lawsuit-proof S corporation shares because of its ownership restrictions. However, S corporations can be owned by single-member domestic or international LLCs (which are taxed as disregarded entities). S corporation shares can also be owned by a sub-trust of an international asset protection trust – although this arrangement is more complex. Another option is to title S corporation shares to a husband and wife as tenants-by-the-entirety if their state T/E laws are sufficiently protective. Finally, for protection, you may encumber or pledge your S corporation shares as you would encumber C corporation shares or any other asset. Again, the method we use in any given case depends on the circumstances.
What is the best way to protect S corporation shares?